Oil Steady, Focus on Euro Zone Worries

Oil prices were steady at around $125 per barrel on Monday, pausing after a rally of around 1.5 percent the previous session as renewed worries about the financial stability of the eurozone returned to the fore.

Supply disruptions from Iran, Syria, South Sudan and Yemen have supported oil prices this year, with Brent rising 16 percent.

On Friday, crude rose by almost $2 per barrel as details emerged of the first sizeable drop in Iranian exports as some buyers stopped or scaled back purchases to avoid Western sanctions aimed at Iran's disputed nuclear program.

Brent crude futures were up 18 cents to $125.31 a barrel at 1133 GMT. U.S. crude futures were down 24 cents at $106.63.

We are trending sideways but in a range of between $122-$126 per barrel for the front month Brent contract, said Christopher Bellew, a broker at Jefferies Bache.

We are off a bit today on continuing worries about euro zone, but it seems like a stalemate as there is good support at $122 per barrel because of continuing growth in the United States and the uncertainty about Iran, he said.

Spain could be the next focus of contagion in the common currency area, as bond investors switch into Italian debt ahead of a meeting of euro financial ministers at the end of the month to decide whether to increase a bailout fund.

Concerns about further sovereign debt issues overshadowed an unexpected improvement in German business sentiment for the fifth month in a row in March.

Prices are in a range moving between worries about demand destruction and tensions with Iran, Petromatrix's Olivier Jakob said on Monday, adding it would be difficult to break out of the range.

On the supply front, crude exports from Iran appear to have fallen this month by around 300,000 barrels per day (bpd), or 14 percent, the first sizeable drop in shipments this year, according to estimates from industry consultant Petrologistics and an oil company.

We've seen a short-term move to the upside on Friday which was unsustainable, so higher oil prices are unlikely from here but lower prices are not likely either due to continued supply risks, Commerzbank's oil analyst Carsten Fritsch said.

Investor sentiment remains in focus ahead of the end of the first quarter, with eyes on the latest speculators net longs on the ICE Brent contract due later today.

In the United States, money managers cut their net long U.S. crude futures and options positions, in the week to March 20, the U.S. Commodity Futures Trading Commission, said in a report on Friday.

The chances of a prompter-than-expected resolution to the standoff that shut out production from South Sudan also added to pressure on the downside.

South Sudan said on Saturday it hopes to resolve a row over oil and other outstanding issues with Sudan within a month or two.

From a psychological point of view, Sudan may cap the upside but it is too early to say that supply will come back sooner. We're still in the early stages of the negotiating process, Commerzbank's Fritsch said.

A restart at South Sudan's oil fields will bring output from the two countries back to about 350,000 barrels per day, up from about 50,000 bpd currently.

N.KOREA ROCKET LAUNCH

U.S. President Barack Obama vowed on Monday to pursue further strategic arms reductions with Russia as part of his broader nuclear disarmament agenda even as he issued stern warnings to North Korea and Iran in their nuclear standoffs with the West.

Washington has condemned North Korea's planned rocket launch next month as a violation of the reclusive state's promise to halt long-range missile firings, nuclear tests and uranium enrichment in return for a resumption of food aid.

If there's any conflict in the East, it will damage economic growth, (which is) bad for oil demand, Tony Nunan at Mitsubishi Corp in Tokyo said.

On the economic front, a pick-up in the United States is offsetting a slowdown in China, Nunan said, adding that the recession in the euro zone is going to be a drag on its economy although the worst is over.